The Illusion of Importance: Reconsidering the UK'S Takeover Defence Prohibition

Abstract

AbstractThis article considers the significance of the UK Takeover Code's non-frustration prohibition. It asks to what extent the prohibition actually prevents post-bid, director-controlled defences that would not have been, in any event, either formally prohibited by UK company law without share-holder approval or practically ineffective as a result of the basic UK company law rule set. It finds that there would be minimal scope for director-deployed defences in the absence of the non-frustration prohibition, and that, in the context of UK company law, such defences have limited scope to be deployed for entrenchment purposes. Furthermore, this minimal scope for board defensive action would, in order to be compliant with a director's duties, require a pre-bid, shareholder-approved alteration to the UK's default constitutional balance of power between the board and the shareholder body to allow corporate powers to be used for defensive effect. In light of this conclusion the article looks for a rationale to justify denying shareholders the right to make this limited and potentially beneficial defensive election. It concludes that no persuasive rationale is available and that the prohibition is unnecessary and without justification.